On April 29, 2021, Governor Newsom signed Assembly Bill 80 (AB 80) into law. AB 80 allows expenses associated with certain federal loans related to the COVID-19 pandemic to be deducted from state taxes, conforming more with the federal deductions. The tax break applies to employers which are not publicly traded companies and which can prove they incurred at least a 25% loss during at least one three-month period in 2020.
For taxable years beginning on or after January 1, 2019, AB 80 excludes from gross income any advance grant amount pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Consolidated Appropriations Act, 2021, (CAA) as well as covered loan amounts forgiven pursuant to the CARES Act, the Paycheck Protection Program (PPP) and Health Care Enhancement Act, the PPP Flexibility Act, and the CAA.
Additionally, AB 80 conforms state law to federal law with respect to the provisions of the CAA which prohibit reduction in tax deductions, denial of basis adjustments, and reduction in tax attributes based on the exclusion of forgiven loan amounts from gross income for taxable years beginning on or after January 1, 2019. Further, AB 80 also conforms state law to federal law with respect to the tax treatment of forgiven PPP loans for taxable years beginning on or after January 1, 2019.
If you have any questions about employment law, please reach out to the experts at Young, Cohen & Durrett, LLP at (916) 569-1700. Please note that we are not tax experts and you should consult with your tax preparers regarding the exact requirements of this new law and how to best maximize these tax changes for your company.